Trade War Risk Worries Fund Managers: Should You Be Concerned?



Trade war is still investors’ top concern

While fund managers are bullish on US equities (SPY) (VTI), there’s still concern in the market. In the BAML (Bank of America Merrill Lynch) September 2018 survey, trade war concerns were cited as the top concern among global fund managers for five of the past seven months.

About 43% of the fund managers surveyed cited a trade war as their top tail risk. In August, 57% of respondents saw a trade war as the biggest tail risk for the markets.

Recent trade escalations between the United States and China (FXI) have kept fund managers concerned about ongoing trade tensions. The second and more comprehensive round of tariffs on $200 billion worth of Chinese goods will come into effect on September 24, which is keeping the markets jittery.

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China slowdown

The next biggest fear among fund managers was the China slowdown, cited by 18% of the survey respondents. Last month, 14% of the respondents cited it as their biggest fear. As the trade war escalates, concerns over China’s slowdown are also picking up. A slowdown in China could have a spillover effect on the world’s economies.

Quantitative tightening

Quantitative tightening was the third-biggest fear for fund managers, cited by 15% of participants. It was the same last month. Central banks around the world, including the Federal Reserve, embarked on quantitative easing following the financial crisis of 2008. For the past couple of years, the Fed has been tightening its policy.

Market participants worry that this reversal of direction could derail economic expansion and negatively affect the markets. Since yields between two-year securities (SHY) and ten-year securities (IEF) (TLT) have narrowed, market participants are growing concerned about an inverted yield curve, which is usually seen as a precursor to an economic recession.


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